Laith Khalaf, head of investment analysis at AJ Bell, comments on the latest Treasury Select Committee report on crypto regulation:
“The Treasury Select Committee thinks the government should treat crypto purchases as gambling rather than investing, and they may well have a point. Cryptoassets are hugely speculative and could easily end up worth nothing, leaving investors with zero to show for any money they have piled in. Everyone probably knows of someone who has either made a packet or lost a packet trading crypto.
“Around five million people have purchased crypto assets, which is only just shy of the six million people who hold a stocks and shares ISA, a mainstream account that has been available from trusted financial providers for almost a quarter of a century. The conclusion must be that many people are leap-frogging tried and tested financial products, and diving straight into the deep end with crypto. It’s easy to see why, especially among younger people exposed to crypto on social media. Many probably feel the small amount of money they have to put aside will never be enough to get on the housing ladder unless they magnify it tenfold. Crypto offers them a shot at achieving this, as does the roulette wheel. Of course, both may also leave you empty-handed.
“There will be some people who are buying crypto with a small amount of money they can afford to lose, for a bit of fun. But equally there will be those who have staked too much, and in some cases borrowed to do so. The reason for buying crypto is generally because everyone else is doing it, and so the price rises, not unlike the way a pyramid scheme works. Those who get in and out early make out like bandits, while those who buy in at the peak of the frenzy crash and burn. Little wonder the Treasury Select Committee still sees fit to describe the crypto industry as ‘the wild west’.
“The Treasury Select Committee wants crypto to be regulated as gambling rather than as a financial service, but the concern is that putting a regulatory stamp on crypto assets will lend them credibility they perhaps don’t deserve. That is certainly a risk worth considering, though arguably treating crypto as gambling will remove the industry from some of the extremely onerous requirements of the financial services regime. Buying crypto is more akin to gambling than investing, but regulating it as such needs to be thought through very carefully to make sure it doesn’t end up being an easier ride.”
